Saturday, March 3, 2012

In his latest piece on popular delusions, SocGen's Dylan Grice conducts a much needed advance thought experiment looking at two specific things: on one hand he isolates the next inevitable social tension: that between "everyone" and the central bankers. Because if there is one specific reason why OccupyX never truly got off the ground is that deep down, the population knows that while bankers are to be despised for their "contributions" to society, they would never have the opportunity to do what they do absent the enabling stance of the "democratically" elected politicians, and more importantly, the deeds of those few academics stuck in a dark room, who daily decide the nominal fate of the world courtesy of money printing.

Which means that in the inevitable progression of "marginalizing-then-brutalizing", when society finally cuts through all the noise and focuses on the one source of all that is wrong in the world, it will not be those residing at 200 West, but the tenants at the Marriner Eccles building: "Politicians can and will take back what they have previously given if and when it is deemed in their interests to do so.

One way they do this is by using the time-tested political strategy known as “marginalise-then-brutalise”. Politicians start by identifying the obstacle to their objectives. For a government short of funds the objective is to raise more funds, and the obstacle is any group/sector which has them." Thus Mugabe “marginalised then brutalised” white farmers, while Hugo Chavez set his sights on private sector “profiteers” … for Hitler it was the Jews, for Philip IV of France it was the Knights Templar, for Diocletian it was the Christians, etc. How long before it is the central banks?" How long indeed? And whether it is with or without political prodding, once the central planning experiment fails, as it will, we would certainly not want to be in Bernanke's shoes...

As for the second part, Grice looks at the proverbial canary in the coalmine - Japan, where central banker tinkering is about to take the country to the next level in authoritarian tinkering, with disastrous results: "The notion that central banks are in control of events is a myth. It’s the other way around. Japan’s addiction to public sector spending is way beyond the boundaries of remedial ‘austerity’. Political pressure on the BoJ to crank the printing press into top gear will become irresistible. We see no alternative...the explosion in Japan’s debt/GDP ratio in the coming years is likely to make that seen in the past decade seem like a minor blip."
Back in May 2011 we first noted that following years of deflation, the only option before Japan is to do more of what it has done before, namely print. Sure enough, after a long delay, it made a "surprising" announcement doing just that.
Here is Grice's take:

The BoJ’s move to print money under political duress shows that in extremis there is no such thing as an independent central bank. Politicians can and will take back what they have previously given if and when it is deemed in their interests to do so.

Unfortunately for the central banks, long since having "betrayed" their independent mandate or two, this means that they themselves are about to be betrayed when the biggest experiment in central planning starts unwinding.

One way they do this is by using the time-tested political strategy known as “marginalise-then-brutalise”. Politicians start by identifying the obstacle to their objectives. For a government short of funds the objective is to raise more funds, and the obstacle is any group/sector which has them. The first step is to politically isolate the target, often by creating popular support for the idea that the target group/sector is to blame for whatever malaise is gripping the country. Step two proceeds when the target has been suitably emasculated and shorn of all defence against even the most brutal attack.

As Machiavelli observed five hundred years ago, “Men are so simple of mind, and so much dominated by their immediate needs, that a deceitful man will always find plenty who are ready to be deceived.” Thus Mugabe “marginalised then brutalised” white farmers, while Hugo Chavez set his sights on private sector “profiteers” … for Hitler it was the Jews, for Philip IV of France it was the Knights Templar, for Diocletian it was the Christians, etc.

How long before it is the central banks? How long before they’re being blamed for not doing enough to check the spike in government bond yields threatening the economy and jobs (even if that spike is caused by wayward government finances)? How long before the populist anger today directed against bankers is directed towards central banks for something like paying too much attention to inflation when x million people are out of work. Economists will provide camouflage for such populism. The cure will be worse than the disease, they will say.

Re-read the above as many as times as needed just so in a year or two when populist vigilanteeism breaks through the heavily guaraded barricades at Marriner Eccles and Liberty 33 and demands blood, and the media says that "nobody could have possibly foreseen this"...MUCH MORE